There’s a strange disconnect between the real estate market’s current state and the financial anxiety one might expect. House prices in New Zealand are falling, interest rates are climbing, and yet the number of mortgagee sales—those distressing auctions where banks reclaim homes—remains stubbornly low. It’s a paradox that screams for deeper scrutiny. What’s going on here? Why aren’t more people defaulting on their mortgages despite what seems like a perfect storm of economic headwinds? Let’s unpack this with a mix of data, psychology, and a healthy dose of skepticism.
The numbers tell a story of relative stability. In the second quarter of this year, there were 111 mortgagee sales, a modest uptick from the previous three months but still a fraction of the 763 recorded during the 2009 financial crisis. Moody’s analysts argue that this isn’t a sign of impending doom but rather a reflection of systemic safeguards. But here’s the thing: when I hear ‘systemic safeguards,’ I think of the 2008 crash, not a 0.6% non-performing loan ratio. That’s a shockingly low number, yet it’s being framed as a reason for optimism. What does that say about our collective understanding of risk? It suggests we’ve normalized financial fragility, which is both comforting and terrifying.
Let’s talk about income. Moody’s VP Frank Mirenzi insists that income stability—not falling house prices—is the key factor here. While this makes sense on paper, it feels like a cop-out. Income stability is a luxury, not a guarantee. Wages haven’t kept up with inflation, and interest rates are rising faster than most people anticipated. But somehow, this hasn’t translated into widespread defaults. Why? Because people are gritting their teeth, delaying major purchases, and hoping for the best. It’s a form of financial repression that feels more like a temporary fix than a sustainable solution. What if the real problem isn’t the mortgage payments themselves, but the psychological toll of pretending everything is fine?
Then there’s the role of banks. Kelvin Davidson from Cotality points out that internal serviceability testing has weeded out riskier loans before they even hit the market. But this feels like a double-edged sword. On one hand, it’s smart to avoid lending to people who can’t afford their payments. On the other, it creates a false sense of security. If banks are only approving loans for people who can barely afford them now, what happens when a recession hits or a black swan event occurs? We’re building a house on sand, and the sand is labeled ‘safeguarded.’
I find it fascinating that banks themselves are reluctant to pursue mortgagee sales. Squirrel’s David Cunningham says it’s bad for their reputation and that they’d rather work with customers. But this raises a deeper question: Are banks truly acting in the public interest, or are they simply avoiding the PR nightmare of foreclosures? The answer probably lies somewhere in between, but it’s worth noting that the system favors those who can navigate it. People who default are often the ones least equipped to handle the fallout, creating a vicious cycle of exclusion and financial precarity.
What about the broader implications? The Credit Contracts and Consumer Finance Act has been a buffer, but it’s not a long-term solution. If the economy falters, or if interest rates spike further, the current stability could evaporate overnight. And yet, we’re told to ‘grit our teeth’ and carry on. This isn’t resilience—it’s desperation dressed as responsibility. The real danger isn’t the mortgagee sales we’re seeing now, but the complacency they inspire. People are holding onto homes that are worth less than they paid, hoping prices will rebound. What if they don’t? The emotional and financial cost of that realization could be catastrophic.
In the end, this isn’t just about numbers. It’s about how we perceive risk, how we manage it, and how we’re conditioned to believe that stability is always just around the corner. The current situation is a testament to both the strength of New Zealand’s financial system and its blind spots. As someone who’s watched economies rise and fall, I can’t help but wonder: Are we building a foundation that can withstand the next storm, or are we simply delaying the inevitable? The answer might not matter right now—but it will, eventually.
